Condo Developers Are Starting to Sweat

New York City

Condo Glut

Aug. 3, 2017 — With inventory up and sales down, developers are feeling the squeeze.

Since 2013, developers have poured thousands of new Manhattan condo units onto the market. In 2017’s second quarter, condo inventory in the borough stood at around 5,900 – up 35 percent year over year, according to Halstead Property Development Marketing (HPDM). And prices for new condos are significantly down amid a slowdown in luxury sales. Translation: developers citywide are sitting on unsold units.

For developers who already have skin in the game, the numbers are alarming, the Real Deal reports. While the sector is not in the dire state it was during the last recession – when buyers attempted to back out of contracts en masse and developers citywide resorted to converting full condo buildings to rentals – lawyers, brokers and developers acknowledged that people are starting to sweat.

Nikki Field of Sotheby’s International Realty said the pressure from lenders has ramped up in the past 18 months as the market has struggled to absorb a glut of new units. “The banks are calling in, and developers have got to deliver,” she says. “They have deadlines to hit for signed contracts, they have pressure. The longer [a project] goes, the more it costs developers. There’s a real sense of urgency to move product.”

And it’s not just banks turning up the heat. The private equity funds that ramped up lending when traditional banks pulled back are also under the gun, because their funds have strict timelines that cannot be extended.

That unease has prompted some developers to turn to a variety of strategies to curtail financial damage and salvage profits, including cutting prices, dangling concessions, selling blocks of unsold units and seeking inventory loans, which use sponsor apartments as collateral.

People are beginning to ask the question that seemed unthinkable just a couple of years ago: did the condo building blitz go too far?

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